IMF approves $17.5bn bailout package for Ukraine

The International Monetary Fund (IMF) board of directors signed off on Ukraine’s new $17.5 billion package of financial aid Wednesday, IMF chief Christine Lagarde has announced.

Lagarde however did not provide details on how large an initial
payment will be made to Ukraine or on what timetable.

"This new four-year extended arrangement will support
immediate economic stabilization in Ukraine," she said.

The first immediate payment from the IMF will consist of $5
billion, Ukrainian Prime Minister Arseny Yatsenyuk announced at a
cabinet meeting on Wednesday, RBC Ukraine reported. He also said
the newly approved financial help would allow Ukraine to receive
$7.5 billion in other loans.

"It will give the Ukrainian economy an opportunity to grow
already in 2016," Yatsenyuk said.

But according to the IMF chief, the move – which aims to provide
economic stabilization for the country – is still risky.

"The program is
ambitious and involves risks , notably those stemming from the
conflict in the east of the country,"Lagarde said.

At the same time, Lagarde said the IMF is blocked from making
loans to countries in a state of war. That means the fund
contradicts itself in making concessions to Ukraine, financial
analyst and commentator Michael Hudson told RT.

“Ukraine is in war, so under IMF rules this loan shouldn’t be
made. It means that if it’s against the rules of the agreement, a
new parliament can come in and repudiate the IMF loan.”

The main condition for allocating a loan by the IMF is the
country’s sticking to austerity measures, which never increase
live standards, he said.

“Taking an IMF loan is the first step to essentially reducing
life quality, and that’s exactly why so many countries are trying
to avoid going to the IMF at all,” he said. “Going to
the IMF is a kiss of death for any political party in power. No
party that borrows from the IMF can be reelected because the
effect is always austerity.”

In February, the IMF pledged the multibillion aid package to
Ukraine over the next four years in additional to the $17 billion
aid package in April 2014.

Without the IMF funds, Ukraine’s economy would likely collapse,
as the economic situation is very fragile. Despite a ceasefire,
bursts of fighting continue in the country’s east, and Kiev
continues the costly war against anti-government forces.

Ukraine’s economy is expected to contract five percent this year,
as about seven percent of its territory has either joined Russia
or is engulfed in civil war, despite two separate ceasefire
agreements. Kiev has allocated more than five percent of its 2015
budget to defense spending.

Ukraine’s central reserves have fallen dangerously below $5.5
billion, and the national currency, the hryvnia, has lost more than half its value in 2015.

The weakening currency has led to massive inflation, which has
reached 272 percent by some estimates. Officially, it was 34.5
percent in annual terms as of February. Ukraine also has
outstanding Russian energy debts it must pay if it wants to
continue receiving natural gas.

In return for the IMF funds, Ukraine has embarked on tough
economic reforms, which include cutting pensions, raising the
retirement age, trimming the state budget, and getting rid of
wasteful gas subsidies. Slashing subsidies will be painful for
households, who could see their heating bills more than triple. The government is also taking steps to
prevent tax fraud and corruption.

In addition to IMF funds, the US has guaranteed $2 billion in Eurobonds, the EU
has promised a €2.2 billion loan, and other Western
allies - Germany, Japan, and Canada - have also pledged
multimillion dollar aid packages. This brings total aid to Kiev,
including IMF funds, to more than $40 billion.

Ukraine has to pay about $10 billion to service its debt this
year, including corporate and sovereign loans and bonds,
according to the Institute of International Finance, a financial
group based in Washington.